Mandates in Employment. A History of Added Burdens on the Unskilled.

Differences in the level of total compensation paid to individuals--known as "compensating differences"--reflect the market valuation of services offered, skills involved in delivery of services, and difficulty in acquiring those skills. Differences in the composition of the compensation package reflect the needs and circumstances of the individuals offering labor services. A mandate--such as the proposed employer mandate in health reform--is imposed to alter either the level or composition of total earnings. In its most benign form, the mandate reallocates the form of compensation. In most cases, a mandate raises employer costs and reduces wages, resulting in a decline in employment. If employers are required by law to pay for health insurance benefits, they will attempt to shrink cash wages by the full cost of the mandate. As cash wages are reduced, an increasing number of employees will find alternatives outside the labor market. Employers will be forced to absorb some of the mandated cost, operate with higher total labor costs, and adjust employment levels downward. Workers are uninsured today because they perceive the value of cash to be greater than the insurance they could buy. Policy makers' current fascination with studies finding no employment effects from an existing mandate--the minimum wage--is misplaced. With existing examples of misguided employer mandates, a strong case can be made against the imposition of further federal mandates and for market-driven responses to employer and employee needs. (YLB)